Nissan Makes Aggressive $1 Billon Move with Chinese Auto Venture

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Researched by Industrialinfo.com (Industrial Information Resources Incorporated; Houston, Texas). The ever-increasing use of concurrent design, part and component delivery, and manufacture and assembly by the automobile manufacturing industry on a global mutli-time zone basis is a phenomenon, which benefits small localized and specialized suppliers and the mega auto companies. A mouthful of a sentence maybe, but it conveys the dynamics and integration of a truly global just-in-time industry, producing wheels for the people in developed, developing, and underdeveloped markets of which China contains a cross section.

In line with the Chinese governments strategy to boost the automotive industry, Dongfeng (SHANGHAI SE:600006.SS) (Shanghai, China), China's second largest carmaker, has been chosen as one of the three flagship conglomerates to push vehicle production. A new 50/50 joint venture between Dongfeng and Japan's number three automaker, Nissan (TOKYO SE:7201T) (Tokyo, Japan), targets production of 550,000 vehicles by 2006 and 900,000 units within ten years to make the venture a globally competitive player.

Nissan will put $1.03 billion into the new company to acquire their 50% equity stake and will contribute between $175 million and $250 million in capital expenditures for specific Chinese product development. Nissan, which is planning to increase sales by one million units between 2002 and 2004, says the deal could add 80,000 units in the target period and upgrade profits. Nissan, which is 44.4% owned by French Renault SA (PARIS SE:RENA) (Paris, France), aims to boost global sales to 3.6 million by the end of the first quarter of 2005. The post 2004 target is 150,000 cars per annum.

The new company, Dongfeng Motor, will be the first Sino-foreign joint venture to manufacture a full line of trucks, light commercial vehicles, and passenger cars in China. Dongfeng will introduce six of Nissan's passenger car models by 2006, in addition to existing local production of the Bluebird sedan that has been produced in a joint venture between Nissan and Dongfeng since 2000. In 2003 production of Sunny sedans will begin.

The Nissan venture follows the recent announcement by Toyota that it was forming a venture with First Automotive Works (Changchun, China), China's biggest automaker. The combine plans to build between 300,000 to 400,000 cars for the local market by 2010, which it claims will give it a 10% market share.

In February 2002 FAW Volkswagen, in a 50/50 venture with First Automotive, announced plans to build 500,000 passenger cars over the next three years including 92,000 Jetta's, 29,500 Audis, and 50,000 newly launched Bora sedans. The Chinese venture sold 124,000 units in 2001 which represented an increase of 17% over 2000. FAW Volkswagen is owned 60% by First Auto, 30% by Volkswagen, and 10% by Audi.

Both Toyota and Nissan were beaten to the punch by Honda Motor, which in partnership with Guangzhou Automobile Group (Guangzhou, China), owned by Denway Motors (HK:0203HK) 9Hong Kong), plans to build 59,000 vehicles in 2002 and to expand capacity by the first half of 2003 to 120,000 vehicles per annum. Honda has also announced that it will work with Guangzhou Automobile and Dongfeng to build small cars staring in 2004. The plant will be the country's first export-only car plant and will have an initial output capacity of 50,000 vehicles per annum.

The fabric of cross fertilization and competition between these Far Eastern auto companies is currently completed, in this particular scenario, by the announcement by Taiwan's Yulon Motor Corp (TAIWAN: 2201) (Taipeh, Taiwan), that it would expand production following the Nissan deal. Yulon has a 40% stake in Aeolus Automobile Corp in which Dongfeng has the balance of 60%. Wait for it - Nissan owns 25% of Yulon. The triangular relationship allows for positive input and comment from any or all parties.

This is just a taste of the Chinese auto market that could be kicking the 5 million unit sales per year line by 2010. This will include local production, kit assembly and wholly made up imports, and a major margin of concurrent global component production and supply.

China is now slated to host a leg of the F1 Grand Prix race circuit. Chinese car market fevers...begin anew.